20131206-巴黎银行证券-Shaanjing_and_LNG__right_on_track_11页_541kb

Kunlun Energy 135 HK Summary

Core Content

Kunlun Energy is a key player in the natural gas distribution and LNG processing market in China. The report reiterates a BUY rating with an updated target price of HKD18.39, up from the previous HKD16.08. The company is expected to benefit from the expansion of its LNG infrastructure and growing demand for natural gas in key regions such as Beijing, Tianjin, and Tangshan.

Main Points

• Gas Transmission Growth: In 10M13, the Shaanjing gas pipeline transmitted 19.5 b cbm, a 6% y-y increase. The company estimates >5% growth for 2013 and expects accelerated growth of 10% and 15% in 2014 and 2015 respectively.

• LNG Sales and Market Share: Kunlun has set up 670 LNG stations (up from 291 in 2012) and developed 67,000 LNG vehicles (up from 31,167 in 2012). The company guides LNG sales to reach 3 b cbm in 2013, more than triple that of 2012. Market share is expected to rise to >50% in 2013 and 70% in 2015, from 39% in 2012.

• LNG Terminal Utilization: The utilization rate of the two LNG terminals is expected to improve, driven by increased gas imports and a 26% rise in LNG prices starting from July 2013. Kunlun expects terminal processing volumes to reach 5.4 b cbm in 2013, up from 5.0 b cbm in 2012.

• Earnings Forecast Adjustment: Earnings forecasts for 2013, 2014, and 2015 have been adjusted to reflect:

  • Natural gas sales volume growth of 40% (from 30%) in 2013.
  • LNG processing volume growth of 22% (from 4%) in 2014.
  • Shaanjing pipeline transmission volume growth of 10% and 15% in 2014 and 2015 respectively.

• DCF and Target Price: The DCF base has been rolled over to 2014, which raises the target price to HKD18.39.

• Investor Concerns: Concerns about corruption investigations involving the ex-chairman of Kunlun are deemed overdone.

• Key Risks: The main risks include a sharp decline in crude oil prices and gas shortages for the Shaanjing pipeline.

Key Financial Metrics (2013E–2015E)

Investment Thesis

• Kunlun is less impacted by cost increases due to its integrated gas supply chain.
• The company is expected to lead the LNG market due to its expanding LNG infrastructure.
• The integrated LNG supply chain (including LNG processing and stations) is viewed as a solid foundation for future growth.
• Strong demand for LNG vehicles and trucks in key provinces is expected to drive market share growth.

Catalysts

• Asset injections from PetroChina (857 HK) and CNPC could ease investor concerns related to the corruption investigation involving the ex-chairman Li Hualian.

Key Assumptions

Earnings Sensitivity

Company Background

• Kunlun Energy is primarily engaged in natural gas distribution, including LNG processing, terminal operations, and pipeline transmission (mainly from the Shaanjing pipeline).
• It also operates upstream exploration and production of crude oil and natural gas.
• It is a major player in the LNG processing and sales market in China.

Key Executives

Peer Comparison (EV/EBITDA and P/E)

Conclusion

The report concludes that Kunlun Energy is well-positioned for growth in the LNG market, supported by its expanding infrastructure, increased market share, and strong earnings potential. The BUY rating is reissued with a higher target price, reflecting the company's improved fundamentals and growth prospects.